The eventual pick-up in real estate dealmaking will happen quickly, predicts Colliers chief executive Jay Hennick – even if “any moron” can see how painful the near term will be.
Hennick (pictured) pointed to “huge appetite” from buyers and sellers but acknowledged that repricing is a sticking point. “The problem is, how do you value some of these assets?” he said on an analyst call to discuss the agency’s first-quarter results.
“It’s not just higher interest rates, it’s availability of capital, and it’s also the negative sentiment that some people have around mortgages that will come due in the near term… But capital markets transactions are happening, and we continue to think that they will happen more and more as the year goes on, because the best assets are being purchased primarily for cash or very low debt levels.”
Hennick added that such issues are now “the new realities” for dealmakers. Colliers posted a sharp drop in capital markets revenue during the quarter, and the team now says the deal slump is likely to continue until the end of the year.
“We all read the paper, this is crystal clear,” Hennick said. “I hate to say it, but any moron should know that this is what happens out there. But we are in the business of helping to make transactions happen. And we think that as things stabilise, they will happen and they will happen quickly. It’s just not there yet.”
Asked about the outlook for offices, Hennick said the market remains “in flux”, but highlighted the growing potential for conversion.
“Our Rockwood Capital business is actively working with one or two office owners in New York to repurpose very significant and well-known buildings into multi-family residential,” he said. “Those are long-term projects, probably four or five years to get completed… Each building is different – the location of the building, the age of the building… and will have an impact on the ultimate value of the business and/or how much people want to invest to repurpose that building.”
Christian Mayer, chief financial officer at Colliers, said the company has made “pretty significant” cost cuts, particularly by reducing non-revenue-producing headcount and shedding office space.
“We continue to be actively looking for and recruiting revenue-producing head count,” Mayer said. “That is our goal to grow the business. But certainly, non-revenue increasing headcount has been an area of focus, as has discretionary spend, as has reduction of office space and as has efficiency improvements.”
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